Complications Of Managerial Economics

Introduction

Managerial economic is the application of the economic concepts and economic analysis to the formulating rational managerial decisions. (The new Palgrave dictionary of Economics, 2nd edition)

Economic is the social science that studies the production, distribution and consumption of goods and services.

Economic have mainly two parts, macro economics and micro economics.

Macro economic is the branch of economics that studies the behavior and performance of an economy as a whole.it focuses on the aggregate changes in the economy such as unemployment, growth rate, gross domestic product and inflation.

Micro economic is the branch of economics that analyses the market behavior of individual consumers and firm in an attempt to understand the decision making process of forms and household.

The

Project risk and reaching for yield affect, the forward standard deviation of asset returns. Raising the price of legacy assets increases, while leverage affects the entire first term of equation 1.

Lowering long-term real interest rates stimulates riskless spending, through households’ substituting inter temporally, firms’ discounting future profits at a lower rate, and a positive wealth effect from a commitment to future expansionary policy. These effects form the textbook channel of monetary policy (Werning 2012).

Low interest rates may also spur risk taking by financial institutions beyond what the ultimate holders of the risk would prefer. Investment management poses a classic principle-agent problem, in which the incentives of managers may not align perfectly with the objectives of shareholders and debt holders (Jensen and Meckling 1976; Rajan